RNS Announcement

Baillie Gifford Shin Nippon PLC (BGS)

Legal Entity Identifier: X5XCIPCJQCSUF8H1FU83

Regulated Information Classification: Half Yearly Financial Report

The following is the unaudited Interim Financial Report for the six months to 31 July 2023 which was approved by the Board on 21 September 2023.

Over the six months to 31 July 2023, the Company's net asset value per share† declined by 9.7% compared to a 1.1% increase in the MSCI Japan Small Cap Index*. The share price decreased by 12.5%.

¾    There was a bifurcation in performance within the Japanese market in the first half of this year. Mature large cap stocks in capital intensive and cyclical sectors did very well in share price terms while high growth small cap stocks continued to languish.

¾    A number of the manufacturing holdings supplying semiconductor and industrial equipment sectors reported weak operating results due to excess inventory and a weak Chinese economy. Contrary to their weak share prices, most of the internet related holdings continued to perform well in operational terms.

¾    Annualised portfolio turnover to 31 July 2023 was 10.9%. Three stocks were sold: Brainpad; Broadleaf and Calbee. New positions were initiated in SWCC Corp, a manufacturer of electric cables and wires, Appier, a developer of artificial intelligence products, and Vector, Japan's largest public relations company.

¾    The Company's share price ended the period at an 11.4% discount to the NAV. 1,100,000 shares were bought back in the reporting period and are currently held in treasury.

¾    Despite the challenging backdrop for high-growth small caps in Japan, the majority of the portfolio's holdings continue to grow strongly whilst their overall valuation multiples are well below their own long-term average.

¾    The Board and Managers remain firmly of the view that exceptional long-term returns are likely to be generated by young, disruptive, fast-growing and entrepreneurial smaller businesses in Japan.

†          After deducting borrowings at fair value.

*           The Company's comparative index is the MSCI Japan Small Cap Index (total return and in sterling terms). See disclaimer at the end of this announcement.

Source: Refinitiv/Baillie Gifford and relevant underlying index providers. See disclaimer at the end of this announcement.

Shin Nippon aims to achieve long term capital growth through investment principally in small Japanese companies which are believed to have above average prospects for growth. At 31 July 2023 the Company had total assets of £579.1 million (before deduction of bank loans of £88.0 million).

The Company is managed by Baillie Gifford, an Edinburgh based fund management group with approximately £219.4 billion under management and advice as at 21 September 2023.

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. The Company has borrowed money to make further investments. This is commonly referred to as gearing. The risk is that, when this money is repaid by the Company, the value of these investments may not be enough to cover the borrowing and interest costs, and the Company makes a loss. If the Company's investments fall in value, gearing will increase the amount of this loss. The more highly geared the Company, the greater this effect will be.

Investment in investment trusts should be regarded as long term. You can find up to date performance information about Shin Nippon at shinnippon.co.uk.

22 September 2023

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: 0131 275 2000

Jonathan Atkins, Four Communications

Tel: 0203 920 0555 or 07872 495396

The following is the unaudited Interim Financial Report for the six months to 31 July 2023.

Responsibility statement

We confirm that to the best of our knowledge:

a)  the condensed set of Financial Statements has been prepared in accordance with FRS 104 'Interim Financial Reporting';

b)  the Interim Management Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months, their impact on the Financial Statements and a description of the principal risks and uncertainties for the remaining six months of the year); and

c)  the Interim Financial Report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

On behalf of the Board

J Skinner

Chair

21 September 2023

Interim management report

The first half of this year saw a bifurcation in performance within the Japanese market. Mature large cap stocks in capital intensive and cyclical sectors did very well in share price terms, helping lift the broader Japanese indices to record highs. Their strong performance was largely due to improvements in corporate governance and shareholder return policies. A key driving factor for this has been the pressure applied on management teams by both domestic and overseas activist investors who have taken large stakes in many of these businesses. In addition, Yen weakness has helped inflate profits as most of these companies are exporters. In this environment and amid a complete lack of investor interest, high growth small cap stocks continued to languish.

In the six months to 31 July 2023, Shin Nippon's net asset value per share (in sterling, after deducting borrowings at fair value) fell by 9.7% compared to a 1.1% rise in the MSCI Japan Small Cap index. The share price declined by 12.5% and finished the period at an 11.4% discount to the net asset value per share. During the period, 1,100,000 shares were bought back and are currently held in treasury. Over three and five years, the Company's net asset value per share is down 13.9% and 17.1% compared to the index which is up 18.2% and 6.5% respectively.

We are disappointed by the weak performance over these varying periods, but this has come in an environment where investor preference has switched from high growth small cap stocks to cyclical companies and companies enhancing corporate value. These companies offer little by way of growth, they make uneconomic returns on capital at the best of times due to their capital intensity and are ripe for disruption given their outdated business models. Dividends and share buybacks tend to be their main attractions. Over the long-term, we remain firmly of the view that exceptional returns are likely to be generated by young, disruptive, fast-growing and entrepreneurial smaller businesses in Japan and we are continuing to invest accordingly.

At a macro level, rising interest rates, inflation, and US-China tensions continue to sour investor sentiment on growth stocks. A slowing Chinese economy and signs of excess inventory in critical sectors like semiconductors and industrial equipment are further dampening market confidence. In this context, it is perhaps unsurprising to see weak operating results being reported by many of our manufacturing holdings exposed to these end markets. More encouragingly and contrary to their weak share price, most of our internet holdings continue to perform admirably well in operational terms.

Among the top positive contributors to performance was Megachips, the sole supplier of custom-made memory chips used in Nintendo's game cartridges. Demand for Nintendo's 'Switch' gaming console has seen a resurgence following the runaway success of the recently released Super Mario Brothers movie. This has translated into rapid sales growth for Megachips. Nintendo has historically been Megachips' largest customer and the latter has made a series of investments over the years to diversify its business beyond Nintendo. These are now bearing fruit, with the company reporting new customer wins in areas like 5G and factory automation.

Online legal website Bengo4.com also performed strongly. The company is continuing to see strong growth in its digital contracts business. In addition, management has recently added a series of new features to the legal website that makes its value proposition more compelling for lawyers. For example, lawyers are now able to prepare for a case using Bengo4.com's AI-enabled tool that trawls through voluminous legal literature and provides lawyers with specific insights. Another example is the online legal library which is a subscription based service that Bengo4.com launched recently. This provides lawyers with a vast and easily searchable library of past cases and rulings.

Cosmos Pharmaceutical was another strong performer. This is one of Japan's leading discount stores that sells mainly food, cosmetics, daily necessities and over-the-counter medicines. It operates a low-cost, 'Everyday Low Price' strategy that is unique and disruptive within the Japanese retail sector. The company deliberately makes slim margins whilst investing excess profits into lower prices for consumers. This strategy has allowed Cosmos to relentlessly take market share from weaker and traditional players who struggle to match Cosmos's price points.

Litalico was among the largest negative contributors to performance. This is an online employment agency that trains and secures jobs for adults with disabilities. It also provides training, development courses and support for disabled children and their families. There are nearly ten million disabled adults and children in Japan. The Japanese government has mandated all corporates to hire a certain percentage of disabled adults each year and this mandated ratio has been rising each year. As the largest provider of such services in Japan, this is a long-term structural tailwind for Litalico. Management is investing aggressively in opening new training centres for disabled adults and children and this has temporarily depressed profitability, although annual sales growth remains well over 20%. The market, however, has taken a dim view of this and has subsequently punished the shares.

Online funeral services provider Kamakura Shinsho also performed poorly in share price terms. It operates an online platform that connects people looking for funeral services with providers of such services. It charges the service provider a fee for introducing customers. Funerals in Japan are an extensive affair involving large gatherings in a sizeable and often costly venue and typically last a number of days. Local funeral houses have a monopoly and often charge egregious prices. Through its online model, Kamakura Shinsho offers customers a choice of providers across Japan complete price transparency and the option for customers to customize the product based on their budgets. During Covid-19 traditional in-person ceremonies were replaced by an improvised, low-cost online version which did not involve the sale of funeral packages. This resulted in a collapse in Kamakura Shinsho's sales and profits. With life returning to normal in Japan, traditional funeral ceremonies have resumed in earnest and the company's sales and profits are bouncing back strongly. Despite this, the market continues to harbour doubts about the company's ability to sustain its growth.

Japan's only, pure-play online life insurer Lifenet was also among the poor performers. It is continuing to take share from large, sleepy incumbents as its brand recognition has improved. The company is also diversifying into other related, profitable and potentially large areas like group credit insurance where it insures individuals' mortgages in the event of death. Japanese accounting standards have meant that Lifenet has had to recognise the entire cost of selling a policy upfront rather than amortising it over the life of the policy which is allowed under IFRS. This results in rising accounting losses as the company write more new business, giving the impression that this is a perennially loss-making enterprise. We believe this is the view taken by the market, resulting in share price weakness. As of this year, the company has adopted IFRS which should more accurately reflect the underlying profitability of the business and change the market's perception of the stock.

Whilst we monitor the investment case for each of our holdings on a regular basis, given our long- term orientation, portfolio activity remained low with annualised turnover of 10.9%. We sold three stocks and bought an equal number of new holdings. Artificial intelligence ('AI') consultancy Brainpad was sold as we lost faith in management's ability to scale the business despite being in an area that is witnessing significant growth. We also sold Broadleaf which develops packaged software for the auto aftermarket industry. The company is changing its entire business model from on-premise to the cloud and this poses significant execution risks for a management team that has a patchy record of executing large-scale internal projects. We also sold Japan's leading snack company Calbee as we were concerned that growth rates might remain pedestrian for many years following a lean period of new product development.

Among the new holdings was SWCC Corp, a leading domestic manufacturer of electric cables and wires. The company appointed its first ever female President a few years ago and she has instituted wide-ranging reforms across the company in a bid to drastically improve profitability. In addition, SWCC is also emerging as a key component supplier that facilitates the last-mile delivery of renewable energy in Japan. Fast growing AI software company Appier was another new addition to the portfolio. This is a Taiwanese company, run by a husband and wife duo, which happens to be listed in Japan. The company has developed a suite of AI products that enable retailers, both offline and online, to target and reach potential customers, increase the lifetime value of existing customers, and more accurately monitor their marketing spend to improve return on investment. We also purchased shares in Vector, Japan's largest PR company. It is run by a young and dynamic founder who retains a large stake in the business. Using its dominant position in PR, Vector is expanding into marketing and advertising where it seeks to offer a complete package, ranging from the initial PR related activities all the way to the post sales promotion for clients. This breadth of offering gives the company a strong edge in our view.

Despite the challenging environment for high growth small caps in Japan, the majority of Shin Nippon's holdings are continuing to grow strongly whilst their overall valuation multiples have collapsed to levels that remain well below their own long-term average. Many of the holdings are also demonstrating sustained levels of profitability despite investing heavily for future growth. These are all very positive developments in our view and increases our conviction in Shin Nippon's current holdings. We have therefore continued to deploy gearing which stood at 17% as at period end. We believe the key to generating significant long-term returns from here is to remain patient and optimistic.

The principal risks and uncertainties facing the Company are set out following note 13 of this report.

Valuing private companies

We aim to hold our private company (unlisted) investments at 'fair value' i.e. the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad-hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team, with all voting members being from different operational areas of the firm, and the portfolio managers only receive final valuation notifications once they have been applied.

We revalue the private (unlisted) holdings on a three-month rolling cycle, with one-third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued four times in a twelve month period. For investment trusts, the prices are also reviewed twice per year by the respective boards and are subject to the scrutiny of external auditors in the annual audit process.

Beyond the regular cycle, the valuations team also monitors the portfolio for certain 'trigger events'. These may include: changes in fundamentals; a takeover approach; an intention to carry out an initial public offering ('IPO'); company news which is identified by the valuation team or by the portfolio managers or changes to the valuation of comparable public companies. Any ad-hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value ('NAV'). There is no delay.

The valuations team also monitors relevant market indices on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate. When market volatility is particularly pronounced the team undertakes these checks daily.

Baillie Gifford statement on stewardship

Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies and give appropriate latitude to diverse processes of our different investment teams. These principles do not all have to be positively reflected in each holding our teams acquire.

Prioritisation of long-term value creation

We encourage our holdings to be ambitious and focus their investments on long-term value creation. We understand that it is easy to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer holdings away from destructive financial engineering towards activities that create genuine economic and stakeholder value over the long run. We are happy that our value will often be in supporting management when others do not.

A constructive and purposeful board

We believe that boards play a key role in supporting corporate success and representing the interests of all capital providers. There is no fixed formula, but it is our expectation that boards have the resources, information, cognitive and experiential diversity they need to fulfil these responsibilities. We believe that good governance works best when there are diverse skillsets and perspectives, paired with an inclusive culture and strong independent representation able to assist, advise and constructively challenge the thinking of management.

Long-term focused remuneration with stretching targets

We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create genuine long-term alignment with external capital providers. We are accepting of significant payouts to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.

Fair treatment of stakeholders

We believe it is in the long-term interests of all enterprises to maintain strong relationships with all stakeholders - employees, customers, suppliers, regulators and the communities they exist within. We do not believe in one-size-fits-all policies and recognise that operating policies, governance and ownership structures may need to vary according to circumstance. Nonetheless, we believe the principles of fairness, transparency and respect should be prioritised at all times.

Sustainable business practices

We believe an entity's long-term success is dependent on maintaining its social licence to operate and look for holdings to work within the spirit and not just the letter of the laws and regulations that govern them. We expect all holdings to consider how their actions impact society, both directly and indirectly and encourage the development of thoughtful environmental practices. Climate change, environmental impact, social inclusion, tax and fair treatment of employees should be addressed at board level, with appropriately stretching policies and targets focused on the relevant material dimensions. Boards and senior management should understand, regularly review and disclose information relevant to such targets publicly, alongside plans for ongoing improvement.

List of investments as at 31 July 2023

*           Absolute performance is in sterling terms and has been calculated on a total return basis over the period

1 February 2023 to 31 July 2023.

u          Private company (unlisted) investment.

†       Figures relate to part period returns where the investment has been purchased in the period.

#      See Glossary of Terms and Alternative Performance Measures below.

‡    Total assets less current liabilities, before deduction of borrowings. See Glossary of Terms and Alternative

Performance Measures below.

Source: Baillie Gifford/Revolution and relevant underlying data providers. See disclaimer below.

Income statement (unaudited)

The accompanying notes below are an integral part of the Financial Statements.

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Balance sheet (unaudited)

Statement of changes in equity (unaudited)

For the six months ended 31 July 2023

For the six months ended 31 July 2022

*The Capital reserve includes investment holding gains of £6,551,000 (31 July 2022 - gains of £36,090,000).

Condensed cash flow statement (unaudited)

* Cash and cash equivalents represent cash at bank and deposits repayable on demand.

Notes to the financial statements (unaudited)

01. Basis of accounting

The condensed Financial Statements for the six months to 31 July 2023 comprise the statements set out above together with the related notes below. They have been prepared in accordance with FRS 104 'Interim Financial Reporting' and the principles of the AIC's Statement of Recommended Practice issued in November 2014 and updated in July 2022 with consequential amendments and have not been audited or reviewed by the Auditor pursuant to the Auditing Practices Board Guidance on 'Review of Interim Financial Information'. The Financial Statements for the six months to 31 July 2023 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 January 2023.

Going concern

The Directors have considered the nature of the Company's principal risks and uncertainties, as set out on the inside front cover, together with its current position, investment objective and policy, its assets and liabilities and projected income and expenditure. The Board has, in particular, considered the impact of heightened market volatility and reviewed the results of specific leverage and liquidity stress testing, but does not believe the Company's going concern status is affected. The Company's assets, which are primarily investments in quoted securities which are readily realisable (Level 1), exceed its liabilities significantly and could be sold to repay borrowings if required. All borrowings require the prior approval of the Board. Gearing levels and compliance with loan covenants are reviewed by the Board on a regular basis. The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) Regulations 2011. Accordingly, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing these Financial Statements and confirm that they are not aware of any material uncertainties which may affect the Company's ability to continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

02. Financial information

The financial information contained within this Interim Financial Report does not constitute statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The financial information for the year ended 31 January 2023 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's Report on these accounts was not qualified, did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report, and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006.

03. Net losses on investments

04. Investment manager

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed by the Company as its Alternative Investment Fund Manager (AIFM) and Company Secretary. The investment management function has been delegated to Baillie Gifford & Co. The management agreement can be terminated on six months' notice. The annual management fee is 0.75% on the first £50m of net assets, 0.65% on the next £200m of net assets and 0.55% on the remainder, calculated and payable quarterly.

05. Tax

The Company suffers overseas withholding tax on its equity income, currently at the rate of 10%.

06. Dividends

No interim dividend will be declared.

07. Net return per ordinary share

Net return per ordinary share is based on the above totals of revenue and capital and on 313,792,816 (31 July 2022 - 314,252,485) ordinary shares, being the weighted average number of ordinary shares in issue during the period. There are no dilutive or potentially dilutive shares in issue.

08. Fair value financial assets

The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit or loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The Company's investments are financial assets held at fair value through profit or loss. In accordance with FRS 102, an analysis of the Company's financial asset investments based on the fair value hierarchy described above is shown below.

There have been no transfers between levels of the fair value hierarchy during the period. The fair value of listed investments is last traded price which is equivalent to the bid price on Japanese markets. Listed investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. Private company (unlisted) investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' private company valuation policy applies methodologies consistent with the International Private Equity and Venture Capital Valuation guidelines 2018 ('IPEV'). The techniques applied are predominantly market- based approaches. The market-based approaches available under IPEV are set out below:

•           Multiples;

•           Industry Valuation Benchmarks; and

•           Available Market Prices.

Further information on the private company (unlisted) valuation process is provided above.

The Company's holdings in private company (unlisted) investments are categorised as Level 3 as unobservable data is a significant input to their fair value measurements.

09. Financial liabilities

The amounts falling due within one year include bank loans of £49,226,000 (¥9.00 billion) outstanding under yen loan facilities repayable on 27 November 2023 and the revolving credit facility repayable on a three monthly basis (31 January 2023 - bank loans of £43,705,000 (¥7.00 billion)). The amounts falling due after more than one year include bank loans of £38,813,000 (¥7.10 billion) outstanding under yen loan facilities repayable between 8 November 2024 and 18 December 2024 (31 January 2023 - £44,308,000 (¥7.10 billion)).

10. Fair value financial liabilities

The fair value of the bank loans at 31 July 2023 was £87,979,000 (31 January 2023 - £87,725,000).

11. Share capital

The Company has the authority to issue shares/sell treasury shares at a premium to net asset value as well as to buy back shares at a discount to net asset value. During the period under review, no shares were issued (31 July 2022 - nil). 1,100,000 shares were bought back during the period under review at a cost of £1,604,000 (31 July 2022 - nil).

12. Transaction costs

Transaction costs incurred on the purchase and sale of the investments are added to the purchase cost or deducted from the sale proceeds, as appropriate. During the period, transaction costs on purchases amounted to £23,000 (31 July 2022 - £36,000) and transaction costs on sales amounted to £14,000 (31 July 2022 - £25,000).

13. Related party transactions

There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have had such an effect on the Company during that period.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Principal risks and uncertainties

The principal risks facing the Company are financial risk, private company (unlisted) investment risk, investment strategy risk, environmental, social and governance risk, discount risk, regulatory risk, custody and depositary risk, small company risk, operational risk, cyber security risk, leverage risk, political risk and emerging risks. An explanation of these risks and how they are managed is set out on pages 8 to 10 of the Company's Annual Report and Financial Statements for the year to 31 January 2023 which is available on the Company's website: shinnippon.co.uk‡. The principal risks and uncertainties have not changed since the date of that report.

The Interim Financial Report will be available on shinnippon.co.uk‡ and will be posted to shareholders on or around 4 October 2023.

‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

Glossary of terms and alternative performance measures ('APM')

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The APMs noted below are commonly used measures within the investment trust industry and serve to improve comparability between investment trusts.

Total assets

This is the Company's definition of Adjusted Total Assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Shareholders' funds and Net Asset Value

Also described as shareholders' funds, Net Asset Value ('NAV') is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue.

Net Asset Value (borrowings at book value)

Borrowings are valued at adjusted net issue proceeds. The Company's yen denominated loans are valued at their sterling equivalent and adjusted for their arrangement fees. The value of the borrowings on this basis is set out in note 9 above.

Net Asset Value (borrowings at fair value) (APM)

This is a widely reported measure across the investment trust industry. Borrowings are valued at an estimate of their market worth. The Company's yen denominated loans are fair valued using methodologies consistent with International Private Equity and Venture Capital Valuation ('IPEV') guidelines. The value of the borrowings on this basis is set out in note 10 above.

Net liquid assets

Net liquid assets comprise current assets less current liabilities, excluding borrowings.

Discount/premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Total return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. The Company does not pay a dividend, therefore, the one year total returns for the share price and NAV per share at book and fair value are the same as the percentage movements in the share price and NAV per share at book and fair value as detailed above.

Ongoing charges (APM)

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value).

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets. Gearing represents borrowings at book less cash and cash equivalents expressed as a percentage of shareholders' funds. Gross gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

Leverage (APM)
For the purposes of the Alternative Investment Fund Managers ('AIFM') Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Active share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Private (unlisted) company

A private (unlisted) company company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.

Third party data providers disclaimer

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

MSCI index data

Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction.

The MSCI information is provided on an 'as is' basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information collectively, the 'MSCI Parties' expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability or any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages (msci.com).

Sustainable finance disclosure regulation ('SFDR')

The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As Shin Nippon is marketed in the EU by the AIFM, BG & Co Limited, via the National Private Placement Regime ('NPPR') the following disclosures have been provided to comply with the high-level requirements of SFDR.

The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines as its policy on integration of sustainability risks in investment decisions.

Baillie Gifford & Co believes that a company cannot be financially sustainable in the long run if its approach to business is fundamentally out of line with changing societal expectations. It defines 'sustainability' as a deliberately broad concept which encapsulates a company's purpose, values, business model, culture, and operating practices.

Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build up an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/or governance matters) which it believes will positively or negatively influence the financial returns of an investment. The likely impact on the return of the portfolio from a potential or actual material decline in the value of investment due to the occurrence of an environmental, social or governance event or condition will vary and will depend on several factors including but not limited to the type, extent, complexity and duration of an event or condition, prevailing market conditions and existence of any mitigating factors.

Whilst consideration is given to sustainability matters, there are no restrictions on the investment universe of the Company, unless otherwise stated within in its Investment Objective & Policy. Baillie Gifford & Co can invest in any companies it believes could create beneficial long-term returns for investors. However, this might result in investments being made in companies that ultimately cause a negative outcome for the environment or society.

More detail on the Investment Manager's approach to sustainability can be found in the ESG Principles and Guidelines document, available publicly on the Baillie Gifford website bailliegifford.com.

The underlying investments do not take into account the EU criteria for environmentally sustainable economic activities established under the EU Taxonomy Regulation.

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